Euro languishes below 1.1500 in the aftermath of Fed’s hawkish hike

EUR/USD consolidates losses at the 1.1475 level, more than 1% down so far this week.
The Federal Reserve hiked rates on Wednesday and left the door open for further hikes in coming months.
Eurozone inflation has been revised slightly lower, although it remains above the ECB's target.

Guillermo Alcala FXStreet

The Euro (EUR) consolidates losses at one-and-a-half-month lows on Thursday, with the US Dollar (USD) still buoyed by the hawkish message sent by the Federal Reserve (Fed) after Wednesday’s monetary policy meeting. The EUR/USD pair is trading practically flat at the 1.1475 level, after depreciating more than 1% so far this week.

The Fed hiked rates by a quarter-point for the first time in three years on Wednesday, meeting market expectations, but the hawkish tone shown by Chairman Kevin Warsh, whose distaste for forward guidance is notorious, came as an absolute surprise.

Warsh affirmed during the press release that “inflation remains elevated” and that the “economy appears to be strengthening,” which markets interpreted as a clear sign that further rate hikes are in the pipeline. These comments restored confidence in the central bank’s independence while boosting hopes of further rate hikes later this year, which sent the US Dollar rallying against its main peers.

Eurostat revised down August's HICP

In the Eurozone, the final Harmonised Index of Consumer Prices (HICP) released on Thursday confirmed that price pressures accelerated to a 0.4% pace in August from 0.2% in July, while the year-over-year (Y-o-Y) record was revised down to a 3.2% growth from the 3.3% previous estimate.

The Core HICP has been confirmed at 0.2% growth and a 2.4% Y-o-Y rise, which maintains the pressure on the European Central Bank (ECB) to keep tightening interest rates in order to tame consumer inflation.

All things considered, analysts at ING see the risks skewed to the downside for the Euro, amid a hawkish Fed and higher Oil prices. They report that their model “now shows a short-term fair value at 1.150, 1% lower than a week ago,” and caution that “further moves in front-end rates, oil or global equities can quickly push that fair value lower.” On the Euro side, ING warns that “there is little (especially eurozone-born) – outside of a correction in energy prices – that is likely to turn the tide for EURUSD at this stage.”

Economic Indicator

Harmonized Index of Consumer Prices (YoY)

The Harmonized Index of Consumer Prices (HICP) measures changes in the prices of a representative basket of goods and services in the European Monetary Union. The HICP, released by Eurostat on a monthly basis, is harmonized because the same methodology is used across all member states and their contribution is weighted. The YoY reading compares prices in the reference month to a year earlier. Generally, a high reading is seen as bullish for the Euro (EUR), while a low reading is seen as bearish.

Economic Indicator

Core Harmonized Index of Consumer Prices (YoY)

The Core Harmonized Index of Consumer Prices (HICP) measures changes in the prices of a representative basket of goods and services in the European Monetary Union. The HICP, – released by Eurostat on a monthly basis, is harmonized because the same methodology is used across all member states and their contribution is weighted. The YoY reading compares prices in the reference month to a year earlier. Core HICP excludes volatile components like food, energy, alcohol, and tobacco. The Core HICP is a key indicator to measure inflation and changes in purchasing trends. Generally, a high reading is seen as bullish for the Euro (EUR), while a low reading is seen as bearish.

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